New law on debt collection should be expanded

posted on 2012-12-05

On Jan. 2, 2013, the Consumer Financial Protection Bureau will begin
monitoring debt collection agencies. As stated by the Dodd-Frank Act,
the bureau will oversee collection agencies with revenues of more than
$10 million each year for collection of personal, family or household
debt, and overdue student loans.

It will check violations of the
Fair Debt Collection Practices Act such as making repeated phone calls,
threatening debtors with prison, calling family members or calling
debtors at work.

Although this is a step in the right direction,
the actual number of agencies under scrutiny will be limited. Only those
collecting more than $10 million a year, plus some smaller agencies
contracted to larger financial institutions such as banks, will be
affected. Out of the approximately 4,500 debt collection companies in
the country, about 175 have receipts of more than $10 million. The
bureau will only scratch the surface of this problem.

While
larger agencies have their share of violations, it’s the smaller
operations that commit the most egregious and outrageous violations.
Larger agencies tend to have compliance officers and attorneys, plus,
they better prepare their employees with procedures and policy manuals.

The
collection industry is an extremely competitive field – to survive,
employees have to prove they can collect – and it’s those who collect
the most that get the best accounts to work on and who make the most
money.

It appears to me that success in the collection business
comes a lot more easily if you bend the rules. Employees of small firms,
who are not trained or supervised as thoroughly as those at larger
firms, tend to violate the act with much greater frequency.

In
2011 the Federal Trade Commission, which handles complaints regarding
violations of the act, recorded more than 180,000 complaints, an
increase of 13,950 from 2000. Yet ACA International, a trade group
representing collection agencies, is pushing back against the bureau’s
oversight, saying the regulations are arbitrary and the $10 million
threshold is too low – it should be $250 million.

Raising the
threshold to $250 million would cut the number of firms under scrutiny
to such a small portion of the industry, it would render the bureau’s
efforts almost useless.

If the bureau is going to be effective, more than the top 175 out of 4,500 debt collectors should come under its oversight.

The
Dodd-Frank Act is a good start, but regulators need to go further to
help consumers who suffer harassment at the hands of debt collectors.